Competitive Advantage – Definition
A competitive advantage is an advantage over competitors gained by offering consumers
greater value, either by means of lower prices or by providing greater benefits and service
that justifies higher prices.
Competitive Strategies
Following on from his work analysing the competitive forces in an industry, Michael
Porter suggested four “generic” business strategies that could be adopted in order to gain
competitive advantage. The four strategies relate to the extent to which the scope of a
businesses activities are narrow versus broad and the extent to which a business seeks to
differentiate its products.
The four strategies are summarised in the figure below:
The differentiation and cost leadership strategies seek competitive advantage in a broad
range of market or industry segments. By contrast, the differentiation focus and cost focus
strategies are adopted in a narrow market or industry.
Strategy – Differentiation
This strategy involves selecting one or more criteria used by buyers in a market – and then
positioning the business uniquely to meet those criteria. This strategy is usually associated
with charging a premium price for the product – often to reflect the higher production costs
and extra value-added features provided for the consumer. Differentiation is about
charging a premium price that more than covers the additional production costs, and about
giving customers clear reasons to prefer the product over other, less differentiated
products.
Examples of Differentiation Strategy: Mercedes cars; Bang & Olufsen
Strategy – Cost Leadership
With this strategy, the objective is to become the lowest-cost producer in the industry.
Many (perhaps all) market segments in the industry are supplied with the emphasis placed
